For America’s Seniors, the Future is Looking Very Scary

Concerns about retirement are not reserved strictly for the elderly. No, Americans of all ages, from seniors to teenagers, have become increasingly aware of the creeping prospect over the years, and now we have the numbers to prove it.

A study from Ameriprise Financial, for example, shows that 58% of Americans don’t feel like they are on track for retirement. The report indicated that people were most worried about meeting health care expenses, which are expected to rise dramatically in coming years, outliving their money, and not losing their investments to another financial or economic crisis.

It turns out that those fears are completely justified, as many Americans on the cusp of retirement are evidently unprepared for what lies ahead. A Bankrate.com survey revealed that a whopping 26% of Americans between the age of 50 and 64 have nothing saved for retirement at all, and 14% of those over 65 haven’t saved anything either.

There will always be a certain percentage of the population that isn’t prepared for retirement, that’s a given. And, with the cyclical nature of the economy, different waves of retirees will be facing retirement with different headwinds or tailwinds. But the problem with this current wave is not just that the economy is still recovering, by some accounts, from the financial crisis, it’s that the generation now reaching the age of retirement is the biggest in American history.

The Social Security System, on a structural level, and which a large number of senior citizens rely on, won’t be able to handle the influx. In 2012, Social Security benefits were dispersed to 5.7 million people, and 64% of them relied on the system to account for at least half of their overall annual income during 2011, according to the Social Security Administration’s 2013 report.

From the same report, the Social Security Administration issues a rather dire warning regarding the long-term sustainability of the program. “Social Security is not sustainable over the long term at current benefit and tax rates. In 2010, the program paid more in benefits and expenses than it collected in taxes and other non-interest income, and the 2013 Trustees Report projects this pattern to continue for the next 75 years. The Trustees estimate that the trust fund reserves will be exhausted by 2033,” the report says.

That is the crux of the issue. The system, as it stands today, simply cannot handle the Boomer generation. It is too large, and the system is too weak. Moreover, individuals have either neglected or have been unable to compensate for Social Security’s shortcomings on their own, and now a shocking number of America’s elderly are completely unprepared for what lies ahead.

Source: U.S. Census Bureau

The Boomers

An article from My Budget 360 digs into the subject to a fairly deep level, and the points they bring up actually do inspire some worry. Not just for retirees, but for the younger generations that are going to need to support them. The piece argues that America is on the brink of a massive spike in the elderly population. As the baby boomers currently make up the largest segment of the population, as they collectively age, the average age of America also slides farther up. The chart above, compiled using data from the U.S. Census Bureau, illustrates this perfectly.

Roughly 10,000 people per day, or 300,000 people per month, are hitting retirement age. That adds up to approximately a few million people per year. Not all of them quit working once they do reach that magical age, but some do. And the ones that are planning on relying on Social Security as their only source of income are in for a turbulent ride.

Social Security

Since Social Security is paid for by people currently in the workforce, the fact that the largest segment of the population plans on taking their cut from the system sends up some red flags. It’s a simple matter of numbers. There won’t be enough to go around if the social security system is left in its current state. Add on to that the fact that people are living longer, and it puts even more strain on the system.

According to the National Academy of Social Insurance, 6.2% of everyone’s reported income goes to funding the Social Security system, up to a cap of $113,700 per year. Employers match that amount, boosting the total up to 12.4% for every paycheck. That’s a considerable amount, especially for low-wage workers who could use every penny they earn.

But it’s all direly needed to fund the program. A Congressional Budget Office analysis for 2013 shows that total outlays for the Social Security system tallied up to $808 billion, roughly around a quarter of total federal spending. In 2012, the social security system paid out benefits to just about 62 million people, according to the Social Security Administration. For a system that is already strained, it simply can’t handle what’s coming around the corner.

Jobs

The jobs that people are working in the current post-recession economy — the jobs that support the Social Security system — are increasingly low-wage and low-skill, meaning that less money overall will be contributed. And of course inflation and stagnating wages also have a role to play. The Bureau of Labor Statistics shows that current unemployment levels have dipped below 6% nationally, but that doesn’t necessarily tell the entire story. Though employment numbers are up, part-time work has had a hand in inflating those figures. Of all the jobs that were lost during the recession, it appears that we have fully recovered. But the jobs that we lost are not the positions that are being recovered.

Part-time jobs have grown significantly over the past few years, in an effort to keep labor costs low by many employers. This means people are making less money, and as a result, paying less taxes. That will lead to more problems down the road, as the Social Security System will ultimately have to adjust for that change. A system that’s already having issues staying solvent is only going to experience more turbulence as a result of the weak economy. It’s really starting to look like the perfect storm.

Source: Harvard

Housing

It doesn’t end there, either. Another question that needs to be addressed is that of who will take care of the elderly when they can no longer care for themselves? The cost of in-home care, or even retirement communities is another segment of the economy that is seeing huge price spikes, mostly due to a simple imbalance in supply and demand. And it’ll get worse.

An article from the Harvard Gazette does a good job of putting the issue in context, stating the uncomfortable fact that America simply is not prepared to handle the housing needs of its aging population. The map above, which was included in a recent article, shows the concentration of America’s elderly, ages 50 and over, depending on the shade of red (the darker, the more concentrated). The left side shows the concentration as it were in 1990, and the right side in 2010. Obviously, the country is getting redder, and older.

That population — of those ages 50 or older — is expected to grow over 133 million by 2030. To put that in perspective, in a mere 15 years, up to 50% of the entire U.S. population will be over the age of 50.

The problems don’t end with the housing shortage. Other logistical problems will arise as well, including transportation issues. As more and more people are unable to get to and from the places they need to go, isolation will become another problem. And with it, increased levels of depression and other health issues.

“Recognizing the implications of this profound demographic shift and taking immediate steps to address these issues is vital to our national standard of living,” said Chris Herbert, acting managing director of the Harvard Joint Center for Housing Studies. “While it is ultimately up to individuals and their families to plan for future housing needs, it is also incumbent upon policymakers at all levels of government to see that affordable, appropriate housing, as well as supports for long-term aging in the community, are available for older adults across the income spectrum.”

So once again, it looks like we need to depend on some action from policymakers who have become known for inaction. But if our politicians decide to sit on their hands once again, there could be some very serious issues down the line. In the meantime, younger generations need to be better educated in personal finance and preparation to help avoid the same issues in the future.